Joining the Digital Wave: Lending in Middle East
Business today is complex – economic conditions are volatile, technology is powering disruption and customers are impatient. The Middle East has seen more than its fair share of challenges – The World Bank reported that regional growth in MENA is projected to fall to 2.1% in 2017 from 3.2% in 2016, before recovering partially to 3.0% in 2018 and 2019. Growth continues to be constrained by relatively lower oil prices and resulting fiscal consolidation. Against this backdrop, the banking and financial services sector needs to find innovative ways to grow, while controlling costs and improving engagement with their customers.
These challenges can be turned into opportunities and banks in the Middle East can leverage the experiences of others and avoid making the same mistakes. It would be crucial to choose the right set of new customers while strengthening relationships with existing ones; optimize operational costs while extending business reach and identify innovative business tactics while leveraging the power of technology. While vision and mindset are critical, so too will be the ability to drive innovation through a unique combination of digitization, personalization and analytics.
A recent report by Arabnet shows that 62% of bank account holders in the MENA region already use online or mobile banking. Nearly 40% of digital banking customers cited round-the-clock access to their accounts as a key reason for adopting digital banking while 29% said less wait time, easier access to transactions and follow-up were important factors. An Ericsson Mobility report found that in the Middle East and Africa – where the penetration of mobile broadband is currently lower than in other regions – the number of mobile broadband subscriptions is expected to grow almost 3X between 2016 and 2022. McKinsey found that about 80 percent of consumers in the two big banking markets (KSA and UAE) are willing to shift from a third to more than half of their credit-card, savings, and borrowing activity to banks with strong digital offerings. So going digital is not just a “nice-to-have” differentiator but instead it is a “must-have” requirement.
While mobile forms a crucial part of the digital strategy, it is just a part of, rather than the end of the transformation. A ‘wow’ experience on mobile can attract customers, but following it by less impressive experiences in the next few stages can be a strong enough reason for customers to move on to other players in the market. For example, a customer using mobile banking extensively is told that to apply for a loan he needs to visit the nearest branch or a customer is able to apply for a loan on mobile but is then told that he needs to visit the branch to submit/validate documents. The mobile experience is about more than ‘anytime-anyplace’ access; today’s customers have been educated to expect fast responses. For example, when food delivery companies are being penalized for delays and online retailers are offering 24 hours guaranteed delivery, banks also need to deliver faster responses across the entire process. If banks are slow in responding, they are leaving the door open for digital disruptors to come in very easily.
While customer experience is the key driver for most business strategies, there are additional benefits from digitization. Take for example new product creation. If a bank decides that a new loan offering needs to be launched for a specific target segment, it should be possible to execute that need quickly – in hours not weeks – or if the financial institution decides to get into a new line of business, its existing customers – who are eligible, should get pre-approved personalized offers in their mobiles/inboxes. In a scenario when maintaining credit quality is of utmost concern, banks struggle in making the process faster while ensuring that they take the right credit decisions. A comprehensive data driven approach in credit decision making, backed by an automated workflow based process can help strike a balance.
While banks are beginning to adopt technologies such as Chabot, Blockchain, Artificial Intelligence, API Banking and Facial recognition, it is imperative that end to end digital is quickly embraced as the first step towards building an organization of the future. There is a clear move to embrace digital by some of the leading organizations. Emirates NBD launched Liv, the UAE’s first digital bank, which has been received well in its target segment. ADCB offered a paperless environment to its customers by introducing its uBank digital banking center. A neo bank CLEARLY was in fray for launch in Dubai. Mashreq recently launched Mashreq Neo, a new full service digital bank, which will be completely branchless, in response to fast-evolving customer behaviour. Fintech companies are also working their way to get a foothold in the region. Abu Dhabi Global Market (ADGM) said it was assessing applications from 22 start-ups and innovators for its Regulatory Laboratory (RegLab) sandbox programme, enabling them to develop their ideas in conjunction with local financial services firms in a light-touch regulatory environment.
The roadmap for digitization differs for each institution, depending on factors such as their strategic thinking, market assessment, risk appetite, willingness to change and the overall business model. However, the current trends indicate that the journey towards a well-articulated digital future is well underway and many institutions have already taken a lead. Today’s banking customers are much more aware of the choices available in the market. While it is for respective institutions to decide when and how they decide to take the plunge, as they say – it is never too late to begin.